Yesterday’s volume in U.S. stock markets was the lowest since the Friday before Memorial Day, which is quite surprising considering it was the Monday following the supposedly highly-anticipated Greek elections. In retrospect, it seems like the Greek elections were just headline fodder for the journalists, as market participants did not care nearly as much. The FOMC announcement on Wednesday carries far more weight, and as I said in QuickHits yesterday, it seems like all market participants have placed their bets and are sitting on their hands until then.
One interesting divergence that has widened in the past 2 weeks is the outperformance of the SPX vs. the EuroStoxx. I have been wrong in the past month in thinking that the long U.S. / short Europe trade which seems so crowded to me would start to unwind. SPX is at multi-decade highs relative to the EuroStoxx index, and continues to outperform. The chart below shows the 2 indices in the top half, and the ratio in the bottom half (higher ratio means U.S. outperforming), over the past 5 years.
The long-term thesis of long U.S. / short Europe makes sense given the stress in the European banking system, but I thought the short-term trade might be stretched. Evidently not yet.